Will the Wii U Succeed?

The success of the Wii U is an important question not only for Nintendo, but for the video game industry in general. Publishers are suffering from the decline of retail video game sales; only the best AAA titles make a return on their investment these days, and as a consequence publishers have mostly stopped producing anything but games they think have a good shot at AAA status. Everyone's looking to next-gen consoles to save the day and return sales to the fabled days of yore... or at least stop the continuing double-digit slide every year.

The Wii U is (in some views) the first of the next-gen consoles. Really, though, it's technically on par with the 360 and the PS3. Many of the launch games are noticeably worse than their PS3 or Xbox 360 versions, though that may be due to unfamiliarity with the new console. Still, no one seems to think the Wii U is a step up in power from the Xbox 360 or the PS3. It is, however, significantly more expensive; $299 for the base 8 GB model Wii U compared to the current deals of $199 for a PS3 or Xbox 360 with a 250 GB hard drive and several games.

I look at the potential Wii U audience as falling into two categories. The first is the audience that already has a PS3 or an Xbox 360. For them there's little reason to buy a Wii U. Until there's a compelling game, like a new Zelda game, any important new game is going to appear on the PS3 or the 360 for sure, and probably look better. Until the Wii U gets several compelling new games with gameplay you can't get anywhere else, I don't expect many sales from PS3 or 360 owners.

Then there's the audience of people who don't own a 360 or a PS3. They either have a Wii only, or no console at all. Maybe they have child who's just now getting old enough to want something they can play games on. That's an even tougher market for Nintendo to capture, because the competition is fierce. Great deals abound the 360 and the PS3; they are at least $100 less, come with several games, and there are hundreds of games available at very reasonable prices (especially classics and used games). Or there's a wide array of tablets like the Kindle Fire, the Kindle Fire HD, the Nexus 7 or the iPad Mini. They all are cheaper than the Wii U, have thousands of free or low cost games, can be used to surf the web, read books, watch movies, or a zillion other things, and are completely portable with better looking screens than the Wii U.

I noticed a disturbing thing looking through the Sunday ads; both Target and Toys R Us were offering deals on Wii U software. Toys R Us is offering 40% off your second Wii U title if you buy one at full price; Target is offering 50% a Wii U title if you buy two at full price. Not the greatest deals, perhaps, when titles are mostly $60. But I have never before seen sales offered on software at the time of a console launch. To me, that says that Target and Toys R Us are not convinced that the Wii U will be able sell all the software possible. Or that Target and Toys R Us are concerned that people may buy their Wii Us at other stores, so they need to attract those buyers.

If Target and Toys R Us were convinced that Wii U's be selling out, there would be no need to offer software deals to attract buyers. Buyers would be scouring all the stores looking for Wii Us. Toys R Us and Target must also be concerned that not all of this Wii U launch software is going to sell, so they are looking for ways to move that inventory. The fact that this is occurring in advance of the console being offered for sale is most disturbing; Toys R Us and Target aren't even waiting to see how sales go before cutting into their profits. (These deals are coming out of the store's margins, and it means they won't be making any profit on those game sales. Why do it? To move some hardware, which they do make money on, and to prevent that hardware from selling somewhere else.)

The important thing to keep an eye on is whether store actually run out of Wii U's, and if they do whether customers actually care or not. I suspect at this price, and with Nintendo probably providing more units than the Wii at launch, that we won't see shortages, or if we do they will just be Nintendo manipulating the supply a bit. I expect the Wii U will see sales grind to a halt in a couple of months, waiting for more compelling software (if it ever arrives) and a price cut to make it more appealing.

Then the even bigger challenge comes next fall, if there's a new Xbox and PS3. Those will certainly have a significant graphics advantage over the Wii U. Their price may not be much higher... or it might even be lower, if rumors of a subscription-subsidized console come true (think of the effective pricing of smartphones, which are subsidized because of the telcos). At that point the Wii U will need to dramatically lower the price, if it hasn't done so before then. Don't think Microsoft and Sony are going to ignore Nintendo when they think about the pricing of their new consoles. They would love to see the console market get less competitive, and if they can kneecap Nintendo they will do it in a heartbeat.

2013 is going to be an epic battleground for the future of the dedicated game console.